Legal Commentary

You Can't Make This Stuff Up

Posted on December 19, 2008
An a href="http://blog.mises.org/archives/009122.asp"article/a from the Mises Institute:blockquoteMadoff is a perfect case study showing that the SEC is incapable of protecting investors as well as free market institutions are, writes Briggs Armstrong...

Temporarily Suspend the Sales Tax

Posted on December 19, 2008
With the near-constant a href="http://economix.blogs.nytimes.com/2008/12/16/the-ideal-stimulus-package/"discussion/a of what should go into Obama's a href="http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121804204.html?wprss=rss_business"stimulus package/a (tax cuts? infrastructure spending?), it's disappointing that a href="http://blogs...

Are Asset Bubbles Inevitable?

Posted on December 19, 2008
Virginia Postrel a href="http://www.theatlantic.com/doc/print/200812/financial-bubbles"thinks/a they are, because bubbles occur even in controlled experiments. This, Postrel argues, casts doubt on the idea that regulations can curb asset bubbles:blockquoteThese lab results should give pause not only to people who believe in efficient markets, but also to those who think we can banish bubbles simply by curbing corruption and imposing more regulation...

In Praise of Shaun Donovan

Posted on December 18, 2008
I didn't get a chance to comment on this last week, but I wanted to mention that Obama couldn't have a href="http://www.nytimes.com/2008/12/13/us/politics/13appoint.html"picked/a a better nominee for HUD Secretary. a href="http://www.nyc.gov/html/hpd/html/about/bio-shaun-donovan...

To access this complete feed in the blog feed reader login or register for free.

NYT Editorial Board Repeats Morgenson Idiocy

Posted on December 16, 2008
The span style="font-style: italic;"NYT/span editorial board a href="http://www.nytimes.com/2008/12/15/opinion/15mon1.html?pagewanted=all"recycles/a a thoroughly discredited accusation about the Fed's decision to save AIG (h/t a href="http://www.portfolio...

Brad DeLong Assumes a Can Opener

Posted on December 15, 2008
Brad DeLong aruges for lowering mortgage interest rates to 4% to boost the housing market. I think Brad needs to re-check his assumptions:The mortgage interest rate is made up of four things. Compensation for inflation--call it 2% per year. Real time preference--the fact that because we will be richer in the future we value future goods at less than par in terms of present ones--call it 2% per year...

The TARP Oversight Panel's Mandate

Posted on December 15, 2008
Comparing the way the Elizabeth Warren-led TARP Oversight Panel describes its mandate with the Panel's actual mandate (see Section 125) is incredibly telling.(For the record, I like Elizabeth Warren. I think she's a great consumer advocate. But there's a time and place for advocacy...

Oh God: Krugman Insults Intelligence of Merkel/Steinbruck

Posted on December 13, 2008
Oh God, Paul, say it ain't so:Nobel laureate for economics Paul Krugman has slammed the German government?s handing of the economic crisis, saying Chancellor Angela Merkel and Finance Minister Peer Steinbrück have completely failed to understand the situation...

David Brooks and Risk Tolerance

Posted on December 12, 2008
David Brooks writes:When investors in New York become gripped by fear, they pull inward. When Washingtonians are gripped by fear, they rush outward, with bigger and more daring plans. The risk tolerance in the financial world has shrunk to zero, but the risk tolerance in the political world has risen to infinity...

Which One Does Not Belong?

Posted on December 11, 2008
It's always amusing to watch Marc Ambinder talk about policy. In this post, Ambinder reports that Obama's economic advisers are worried about "the complete economic collapse of a large, unstable nation":To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already)...

Howard Husock making late push for Dishonest Hack of the Year

Posted on December 10, 2008
Just 8 days after Fed Governor Randall Kroszner gave a speech completely eviscerating the argument that the Community Reinvestment Act (CRA) had anything to do with the subprime crisis, the NYT decides to publish an op-ed by Howard Husock aruing that the CRA deserves a significant portion of the blame for the subprime crisis...

Two Absolute Must-Reads

Posted on December 09, 2008
1. A 2005 internal Fannie Mae presentation, titled "Facing Strategic Crossroads"The presentation is the smoking gun in the debate over whether Fannie and Freddie entered the subprime and Alt-A markets in order to satisfy government mandated affordable housing goals, or for market-related reasons...

Uh-oh: Mortgage Modification Programs are Terribly Ineffective

Posted on December 08, 2008
This is bad news:Most U.S. mortgages modified by lenders to help keep struggling borrowers in their homes fell back into delinquency within six months, the chief regulator of national banks said.Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue, John Dugan, head of the Treasury Department?s Office of the Comptroller of the Currency, said today at a housing conference in Washington...

Financing Lawsuits with Bailout Money

Posted on December 07, 2008
The WSJ reports that one of the sticking points in the negotiations over an auto bailout between the Dem leadership and the White House is:A demand by senior Democrats that funds under the bailout not be used by the automakers to finance lawsuits challenging state car-emission limits...

It's ICE

Posted on December 05, 2008
Not that it was totally unexpected, but in the race between IntercontinentalExchange (ICE) and CME Group to get the first CDS clearinghouse up and running, ICE is going to win. ICE just won approval for a New York trust charter from the New York Banking Department...

The Business Judgment Rule Wins Again

Posted on December 05, 2008
New York Supreme Court rejects shareholder challenge to fairness of JPM's rescue of Bear Stearns. A huge win for the business judgment rule.

Bernanke's Speech: A Picture is Worth 1,000 Words

Posted on December 02, 2008
Making the rounds:

Two Observations on the Financial Crisis

Posted on November 24, 2008
Having spent the past two months at hedge funds and money center banks, let me offer a couple broad observations about the financial crisis.First, Wall Street and Greenwich were absolutely convinced that the government would save Lehman. They interpreted the Bear Stearns rescue as a signal that no major financial institution would be allowed to fail...

Citi Bailout: An "Extremely Unusual" Deal

Posted on November 23, 2008
The government and Citi have (finally) agreed on a bailout, and the structure of the deal is a bit of a shocker. From the WSJ:Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp...

Regulators push for disclosure of bespoke CDS

Posted on November 19, 2008
Regulators want to get a peak at the world of non-standard CDSs:The Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission want information about credit-default swaps that don't conform to standard terms to be disclosed in a central warehouse that would make sure all trades get recorded, said the person, who declined to be identified because the discussions are private...

Auto Bailout

Posted on November 16, 2008
I'm undecided on the auto bailout. At first I was opposed to it, because if there's anyone who has ever needed Chapter 11 bankruptcy, it's the Big Three. Their business model and their capital structure are both clearly unsustainable; they badly need to restructure, and that's what Chapter 11 is for...

The Importance of the New York Fed

Posted on November 14, 2008
Ben Bernanke thinks losing the President of the New York Fed in 1928 left policymakers rudderless when the markets crashed in 1929:In the run-up to the Depression, Bernanke argued, better leadership could have made a difference. In a November 2002 speech honoring the economist Milton Friedman, Bernanke, already serving on the Fed's board of governors, recounted the tale of Benjamin Strong...

Headline of the Day

Posted on November 13, 2008
From Bloomberg:The subtle mockery is priceless.

Good News on CDS Clearinghouse

Posted on November 12, 2008
This is good news:The Federal Reserve is working on a plan that would give it authority to regulate the clearing of trades for the $33 trillion credit-default swap market, according to people with knowledge of the proposal.The Fed, the U.S. Securities and Exchange Commission, the Treasury Department and the Commodity Futures Trading Commission are discussing a memorandum of understanding that lays out oversight of clearinghouses that would become the central counterparty to credit-default swap trades, said the people who asked not to be named because the discussions are private...

The Myth of Wall Street's Genius

Posted on November 11, 2008
Michael Lewis has a long piece in Portfolio called "The End of Wall Street's Boom" that I highly recommend. A recurring theme in the piece is that Wall Street financiers just aren't as smart as everyone thinks they are.I couldn't agree more.Virtually no press account of the financial crisis is complete without paying homage to how smart the financiers who got us into this mess are...

Appointing New Treasury Secretary Doesn't Require Political Capital

Posted on November 08, 2008
Ben Stein offers a bizarre piece of advice to President-elect Obama:HAVE REALISTIC EXPECTATIONS Plan what must be done to effect the minimum amount of change you?ll be happy with. All politicians basically promise the moon and the stars to their supporters...

DTCC: $33.6 Trillion in CDS Registry

Posted on November 04, 2008
DTCC: Gross notional total of credit default swaps in DTCC registry is $33.6 trillion. $15.4 trillion in single-name CDS, and $14.8 trillion in CDS linked to indexes. DTCC claims that its registry captures about 90% of the CDS market.That's actually larger than I was expecting, but still much smaller than the numbers constantly cited by the media.

Great Day in the Markets. No, Really.

Posted on November 04, 2008
Tremendous day in the markets, virtually across the board.In the equity markets, the S&P closed up 4.08% (and over 1000 again!), the Nikkei surged 6.27%, and the FTSE 100 was up over 4% as well. Almost equally as important, the equity markets traded in a narrow range all day...

Electoral projection

Posted on November 04, 2008
With the first round of exit polls on the horizon, I should get my electoral projection on the record. Here it is:As for the Senate, I see the Democrats picking up 7 seats, bringing their total to 58. Democrats will pick up Virginia, Colorado, New Hampshire, Alaska, New Mexico, North Carolina, and Georgia; however, they'll lose Minnesota and Kentucky...

Oh, the irony

Posted on November 01, 2008
From Helen Avery?s article (via Felix Salmon) about the failure of Lehman Brothers Europe, and the devastating consequences for its prime brokerage clients:?US hedge funds maintain the UK law is archaic and should be changed to protect prime brokers? clients, and some have complained to the Bank of England...

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.